Changpeng Zhao (CZ), the CEO of Binance, said his exchange will soon start a Proof-of-Reserves audit system to allow verification of its digital asset holdings.
It has been reported that CZ pledged to implement a Proof-of-Reserve mechanism at Binance to provide “full transparency” through the use of Merkle Trees — a data structure used to encode blockchain data more efficiently and securely. A Proof-of-Reserve audit is ordinarily conducted by an independent third party to ensure the custodian’s assets are owned as claimed.
However, his intention to implement Proof-of-Reserves comes after Binance agreed to buy rival cryptocurrency exchange FTX on November 8, who’s been rumored to be on the brink of financial collapse despite CEO Sam Bankman-Fried initially dismissing the claims.
Sergey Nazarov, the CEO of Chainlink, expressed his views in a November 8 tweet that a cryptographic-based Proof-of-Reserves mechanism could paint investors with a more clear picture of the solvency situation of a trading venue or financial firm, and “is becoming the new industry standard.”
He said:
“It is clear that cryptographically proving the solvency of trading venues and financial institutions is becoming the new industry standard. Proof of Reserves is a great example of a cryptographically guaranteed financial world that starts in crypto going on to mainstream finance.”
The report said that crypto exchange Kraken has already implemented its “advanced cryptographic accounting procedure” to allow users to verify their token balances since February 2022. Crypto exchange OKX also announced its plans to roll out a Merkle tree-based Proof-of-Reserves audit system in a November 8 Twitter post —- something they consider to be an “important step” in establishing a “baseline trust” in the industry.
Thus, the idea of more Proof-of-Reserve audits received near-full backing from the Twitter community, with crypto industry figures weighing in on the move by Binance.
Source: Cointelegraph